HONG KONG: An international regulatory group is carrying out a review of government penalties for corporate wrongdoing, seeking to make them more uniform amid complaints from some European authorities about the size of fines handed out by the United States.
The review by the International Organisation of Securities Commissions (IOSCO) comes after US authorities slapped a record fine of almost $9bn on French bank BNP Paribas for breaching US government
sanctions against Sudan, Cuba and Iran. IOSCO will establish the key tools — including fines, prison sentences, and clawing back ill-gotten gains — that deter financial firms from breaking the rules, to help more closely align national regimes, David Wright, secretary general of IOSCO, said.
He said regulatory deterrents vary too widely across the globe and that a series of recent scandals had highlighted that this had become an important regulatory issue. The report is being led by Britain’s Financial Conduct Authority and will hopefully be signed off by IOSCO’s members during the agency’s board meeting in September, Wright said.
Madrid-headquartered IOSCO is an international body comprising more than 120 global regulators. In 2009, it was tasked by the G20 group of nations to help implement the global reform agenda following the financial crisis. Wright said the different punitive regimes across the world could even encourage regulatory arbitrage, where companies move their businesses to jurisdictions with weaker rules.
“We need to start to work on much more effective sanctions regimes and what we call credible deterrents,” he added.
Although it has no enforcement powers, IOSCO’s guidelines and principles on a range of issues —from benchmarks and exchanges to automated trading — are rapidly becoming the blueprint for regulators across the globe.
The paper will recommend that countries bring their sanctions in line with their peers to remove the incentives for regulatory arbitrage, and will also cover areas such as legal frameworks, judicial competence, whistle-blowing, market surveillance, and powers of investigation.
Simon Gleeson, a financial services lawyer at Clifford Chance in London, said banks want greater predictability from such guidance, like there is with sentencing tariffs in criminal justice cases.
“It would not work as a global compulsory thing as the Americans would not stand for that, but it could be immensely useful to give the people who set fines a framework of reference which they entirely lack at present,” Gleeson said.
“If there was a globally recognised tariff then you would not have the US Dept. of Justice running around throwing out telephone book numbers,” he added.
Wright declined to comment on the BNP case specifically, but said a patchwork of legal regimes would lead to a variety of enforcement approaches. “I think people are beginning to realise that it’s not healthy to have different approaches.”
The role of financial penalties in deterring corporate malfeasance has become a hot topic during the past year amid criticism that US and European regulators have put too much emphasis on financial settlements alone.
Wright added that among regulators internationally there had been “too little attempt” to pursue corporate executives within institutions. “I think there’s a lot of interest now in how we can make the sanctions in general much more of an incentive towards good behaviour.”Reuters
